Re Doray Minerals Ltd; [No 2]
[2019] WASC 99
•28 MARCH 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE DORAY MINERALS LTD; EX PARTE DORAY MINERALS LTD [No 2] [2019] WASC 99
CORAM: VAUGHAN J
HEARD: 28 MARCH 2019
DELIVERED : 28 MARCH 2019
FILE NO/S: COR 21 of 2019
EX PARTE
DORAY MINERALS LTD
Plaintiff
Catchwords:
Corporations law - Schemes of arrangement - Proposed merger acquisition - Share scheme - Option scheme - Application for orders approving schemes under s 411(b) of the Corporations Act 2001 (Cth)
Legislation:
Corporations Act 2001 (Cth), s 411, s 412
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | A J Papamatheos |
Solicitors:
| Plaintiff | : | Bellanhouse |
Case(s) referred to in decision(s):
Re Doray Minerals Ltd; Ex parte Doray Minerals Ltd [2019] WASC 57
Re Tawana Resources NL (No 3) [2018] FCA 1952
Re Tawana Resources NL [2018] FCA 1456
Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [2018] WASC 357
VAUGHAN J:
Overview
On 15 February 2019 I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) to convene meetings of the ordinary shareholders and certain option holders in Doray Minerals Ltd (Doray). The meetings were convened to consider two proposed schemes of arrangement - a share scheme and an option scheme. I also made orders approving distribution of a scheme booklet.
The proposed share scheme provides for Silver Lake Resources Ltd (Silver Lake) to acquire all of the ordinary shares in Doray for a scheme consideration of 0.6772 of a new Silver Lake share for each Doray share. The option scheme is as to options exercisable at 40 cents on or before 30 January 2020. It provides for Silver Lake to acquire those options for a scheme consideration of $0.0781 cash for each Doray option.
The two scheme meetings were held on 22 March 2019. At the share scheme meeting Doray's members approved the scheme of arrangement by 99.19% of votes cast and 96.29% of members present in person or by proxy. At the option scheme meeting Doray's relevant option holders approved the scheme of arrangement unanimously, ie by 100% of the votes cast and all of the relevant option holders present in person or by proxy.
This morning application was made pursuant to s 411(4)(b) of the Act for orders approving the two schemes. I made orders approving the two proposed schemes of arrangement. These are my reasons for those orders.
Background and additional evidence
Incorporation of earlier reasons
I gave reasons for my 15 February 2018 orders in Re Doray Minerals Ltd; Ex parte Doray Minerals Ltd.[1]
[1] Re Doray Minerals Ltd; Ex parte Doray Minerals Ltd [2019] WASC 57.
I do not intend to repeat what was said in those reasons. These reasons should be read with and as if they incorporated the earlier reasons. In particular, I rely on what was stated in the earlier reasons as to:
(1)the relevant entities, Doray and Silver Lake ([8] to [10]);
(2)the announcement of the acquisition proposal ([11] to [14]);
(3)the nature of the proposed schemes of arrangement ([11] to [16], [18] to [25], [31], [58] to [63] and [64] to [71]);
(4)the description of the scheme booklet ([32] to [34], [49] to [51] and [53]) and the steps taken by way of verification of the contents of the scheme booklet ([52] and [54] to [55]); and
(5)the opinion expressed in the independent expert report (IER) ([26] to [30]) and the position of Doray's directors ([17] and [55]).
Additional evidence
Doray relied on eight affidavits sworn by six deponents for the purpose of the first hearing.[2] That material was formally relied on for the second hearing. In addition, Doray relied on the following affidavits:
(1)an affidavit of Julius Matthys affirmed 22 March 2019. Mr Matthys was the chairperson of the scheme meetings. Among other things, Mr Matthys confirmed the outcome of the scheme meetings;
(2)affidavits of Deanna Carpenter affirmed 25, 26 and 28 March 2019. Ms Carpenter is Doray's solicitor and deposed to a number of formal matters. In addition Ms Carpenter made disclosure on behalf of Doray as to the termination of a transaction known as the 'Westgold transaction' and the pre‑scheme meetings receipt of a statement of voting intention on the part of Doray's largest shareholder, Perennial Value Management. It was disclosed that this 12.94% shareholder had confirmed an intention to vote its shares in favour of the share scheme subject to no superior proposal emerging;
(3)affidavits of Rodney Somes affirmed 26 and 27 March 2019 as to the conduct and outcome of the two scheme meetings (Mr Somes having provided share registry assistance with the convening and conduct of the scheme meetings, proxy collation and report tabling and also having been appointed as returning officer on the polls conducted as to the scheme meetings); and
(4)affidavits affirmed by employees of various external service providers to Doray who deposed as to the printing and dispatch of the scheme booklet and proxy forms (including the electronic dispatch of the scheme booklet to those members who had nominated for electronic dispatch).[3]
[2] Re Doray Minerals Ltd; Ex parte Doray Minerals Ltd [6].
[3] See the affidavit of Chad van Heemst affirmed 25 March 2019; the affidavit of Paul Mackay affirmed 25 March 2019; the affidavit of Cassandra Rodgers affirmed 25 March 2019.
Counsel for Doray provided comprehensive written submissions dated 26 March 2019. These were amplified in the oral hearing before me. In particular counsel directed my attention to a minor error in the dispatch of the scheme booklets, the receipt and announcement of the statement of voting intention and the termination of the Westgold transaction.
Disposition
Applicable legal principles
I identified the applicable legal principles on an application for approval of a proposed scheme of arrangement under s 411(4)(b) of the Act in Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2].[4]
[4] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd[No 2] [2018] WASC 357 [11] - [19].
In short, there are two main tasks. First, the court must be satisfied that all statutory and procedural requirements under s 411(4)(b) have been observed. Second, the court must determine in the exercise of discretion whether to approve the scheme.
On the latter question, acknowledging that the members (and, for the option scheme, the option holders) are better judges of what is in their commercial interests than the court, consideration is usually given to:
(1)whether the relevant parties voted in good faith and not for an improper purpose;
(2)whether the proposal is fair and reasonable;
(3)whether the scheme proponent has brought all relevant matters to the court's attention;
(4)whether there has been full and fair disclosure to the members (and, for the option scheme, the option holders) of all material information;
(5)whether minorities would be oppressed; and
(6)whether the scheme offends public policy.
Formal matters
Doray's further affidavit evidence establishes that:
(1)a copy of the court's orders made 15 February 2019 were lodged with the Australian Securities and Investments Commission (ASIC) on 18 February 2019;
(2)a copy of the scheme booklet as approved for distribution was lodged with the ASIC and registered on 18 February 2019;
(3)the scheme booklet was dispatched to Doray's members and the relevant option holders on 20 February 2019 in accordance with par 4 of the orders of the court made 15 February 2019. There were 3,358 postal recipients and 2,363 email recipients. Fourteen electronic notifications failed. Twelve of those members were sent a hard copy of the scheme booklet on 22 February 2019. However, for reasons that are unclear, two members whose email notification failed were not sent a hard copy scheme booklet until 11 March 2019; and
(4)the scheme meetings were held on 22 March 2019 in accordance with pars 3 and 7 to 13 of the orders of the court made 15 February 2019.
Paragraph 6 of the court's orders made 15 February 2019 required that, in the event electronic notification failed, a hard copy scheme booklet was to be dispatched to the shareholder or relevant option holder within a reasonable time. That occurred for 12 of the 14 electronic failures. It did not occur for the two where the scheme booklet was not sent until 11 March 2019. However, the failure was only as to two of some 5,721 recipients. I am satisfied that there was substantial compliance with the dispatch orders made 15 February 2019 and that the non‑complaince was a procedural irregularity which had not caused and will not cause any substantial injustice and does not invalidate the proceedings.[5] The 14 members only comprised 0.045% of the shares on issue. I thus infer that the two shareholders who were not provided with the hard copy scheme booklet in a timely manner comprised a very small proportion of the shares on issue. The late compliance with the requirement to provide the hard copy scheme booklets could not have had any effect on the statutory majorities as obtained at the share scheme meeting.
[5] Corporations Act 2001 (Cth), s 1322(2).
At each scheme meeting the proposed scheme of arrangement was approved by resolution with the required statutory majorities.
I will first address the share scheme. As to votes, 99.19% of the votes cast were in favour of the resolution (280,329,343 in favour and 2,288,950 against). As to head count, 96.29% of members in attendance by person or proxy voted in favour of the resolution (779 in favour and 30 against). Some 63.08% of the shares on issue were voted (representing 809 of 5,721 eligible shareholders).
Based on this analysis counsel for Doray submitted, and I accept, that there is not such a low voter turnout as might signify an error in dispatch procedures. I note also that those members who did vote voted overwhelmingly in support of the proposed share scheme of arrangement.
Turning then to the option scheme. All of the votes cast were in favour of the resolution (657,392 in favour and none against). As to head count, all seven of the option holders in attendance by person or proxy voted in favour of the resolution. Some 34.12% of the relevant options on issue were voted (representing seven of the 29 eligible option holders). I note that, following the exercise of a number of the options, the options on issue as at the date of the option scheme meeting totalled 1,926,669.
Notice of the second court hearing was given by way of an advertisement in The Australian newspaper on 19 March 2019. That occurred in compliance with par 15 of the court's orders made 15 February 2019. No party has sought to appear to oppose the approval of the proposed schemes of arrangement.
Finally, to complete satisfaction of the various formal matters, by letter dated 27 March 2019 the ASIC informed Doray pursuant to s 411(17) of the Act that it had no objection to the two proposed schemes of arrangement.
Accordingly, all statutory and procedural preconditions to the court's approval were satisfied.
Exercise of discretion: usual matters
I was satisfied at the first hearing that the two proposed schemes of arrangement were fit for consideration by Doray's members and the relevant option holders. A sensible business person might consider that the schemes will be of benefit to them.[6] In so holding I relied in part on the opinions expressed by the independent expert in the IER[7] and the views of Doray's directors.[8] I was satisfied that those opinions were reasonably open.
[6] Re Doray Minerals Ltd; Ex parte Doray Minerals Ltd [74].
[7] Re Doray Minerals Ltd; Ex parte Doray Minerals Ltd [26] - [30], [74].
[8] Re Doray Minerals Ltd; Ex parte Doray Minerals Ltd [17].
In short, the proposed schemes were open to Doray's members and the relevant option holders to adopt.
My conclusions reached at the interlocutory first stage hearing have not altered. I remain satisfied that the two proposed schemes ‑ both the share scheme and the option scheme - are fair and reasonable such that an intelligent and honest shareholder and option holder properly informed might approve them. My view is bolstered by the overwhelming support that has been expressed for the schemes and the absence of any opposition to them. I note also that the recommendation of the Doray board remains unchanged; they have continued to recommend the share and option schemes in the absence of a superior proposal. Nor has there been any alteration of the independent expert's opinion that the two schemes are fair and reasonable. To the contrary, as will be seen, the independent expert has recently reconfirmed his opinion.
There is nothing to suggest an absence of good faith or an improper purpose on the part of the members or the relevant option holders in approving the two proposed schemes. Nothing in the schemes is oppressive. Nor are the schemes offensive to public policy. This is an acquisition scheme which follows a familiar path employed in numerous schemes of arrangement that have been approved by various courts over the years.
As to disclosure, at the first hearing, based on the evidence then before the court and for the reasons that I gave, I was satisfied that the draft scheme booklet would provide proper disclosure to members and the relevant option holders.[9] The additional affidavit evidence establishes that the scheme booklet as distributed was substantially in the form approved for distribution by the 15 February 2019 orders. Nothing has arisen to suggest that there has not been full and fair disclosure. For the reasons I gave in approving the draft scheme booklet for distribution, I am satisfied that the scheme booklet as distributed met the requirements under s 411(3) and s 412(1) of the Act.
[9] Re Doray Minerals Ltd; Ex parte Doray Minerals Ltd [48] - [56].
Otherwise, more generally, there was nothing to suggest that Doray had not brought to my attention all matters that could be considered relevant to the exercise of the discretion to approve the two schemes.
Exercise of discretion: specific matters
Three specific matters were drawn to my attention that ought to be recorded.
First, Ms Carpenter's affidavit affirmed 26 March 2019 disclosed that the Westgold transaction, whereby Doray proposed to undertake a disposal of two of its non-material assets, had been terminated. The then proposed transaction had been disclosed in the scheme booklet (sections 4.1 and 4.2(d)). The termination was announced on the ASX's platform on 1 March 2019. The independent expert was asked to address whether the termination affected the opinion as expressed in the IER. By a letter dated 1 March 2019 BDO Corporate Finance (WA) Pty Ltd stated:
We have been informed that the agreement to sell Andy Well and Gnaweeda to Westgold has been terminated. As such, we have instructed Optiro Pty Ltd … the independent technical specialist used for our IER to provide a broad range of market values for Andy Well and Gnaweeda following the information that the proposed deal with Westgold was terminated. Optiro have advised that the combined value of Andy Well and Gnaweeda is in the range of $5 million to $10 million with a preferred value of $7.5 million. Our IER dated 29 January 2019 valued the consideration at $8.3 million, however we note that we assigned a nil value to the deferred contingent consideration on the basis of a lack of reasonable grounds to assume achieving of these targets and the timing on which these targets may be met.
We have assessed the above change to the value of Andy Well and Gnaweeda and conclude that it does not have a material impact on the analysis contained in our IER, is not material information to Shareholders and does not alter our opinion. As such, our opinion in relation to the Schemes remain as follows:
•The Share Scheme is fair and reasonable and in the best interests of the shareholders of Doray; and
•The Option Scheme is fair and reasonable and in the best interests of the Option holders of Doray.
Based on the above, we are of the view that a supplementary IER is not required.
That view was communicated to the ASIC. On 8 March 2019 the ASIC informed Doray that it had no further comments at that time.
I accept that the termination of the Westgold transaction was disclosed prior to the scheme meetings. I also accept, as is evident from the independent expert's further advice, that the termination of the Westgold transaction does not have a material impact on the proposed schemes. Importantly, it did not affect the independent expert's opinion that the proposed share scheme and the proposed option scheme are fair and reasonable and in the best interests of Doray's members and the relevant option holders. For those reasons I am satisfied that the termination of the Westgold transaction does not affect my conclusions as to fairness and reasonableness and the adequacy of Doray's disclosure.
Second, Ms Carpenter's affidavit affirmed 26 March 2019 disclosed that its largest shareholder, Perennial Value Management, had provided a statement of voting intention on 8 March 2019.
The shareholder holds 12.94% of Doray's ordinary shares. Notice was given that the shareholder intended to vote in favour of approval of the share scheme subject to: (1) no superior proposal emerging; and (2) the independent expert continuing to conclude in its IER that the share scheme is in the best interests of Doray's shareholders.
The receipt of the statement of voting intention was announced on the ASX on 13 March 2019. The terms of that disclosure complied with the Takeovers Panel's Guidance Note 23: Shareholder intention statements.
The evidence confirmed that no benefit or inducement was offered to provide the statement of voting intention.
I do not consider the statement of voting intention to be class creating.[10] Nor, given that the statement is that of a single member with a holding considerably less than a 20% shareholding, is there apparent reason to be concerned that the statement of voting intention was oppressive or coercive. In the circumstances of the present case there was nothing inherently unfair about shareholders and option holders knowing how another shareholder intended to vote in advance of the scheme meetings.
[10] Re Tawana Resources NL [2018] FCA 1456 [49] - [57]; Re Tawana Resources NL (No 3) [2018] FCA 1952 [24].
Finally, the additional affidavit evidence adduced for the second hearing dealt with the status of the various conditions precedent to the two schemes of arrangement. Specifically, the affidavit of Ms Carpenter sworn this morning attaches certificates of satisfaction of conditions precedent on the part of both Doray and Silver Lake. The certificates confirm satisfaction or waiver of all conditions precedent other than court approval. Accordingly, the evidence established that the only remaining substantive condition precedent is the court's approval under s 411(4)(b) of the Act.
Conclusion: proposed schemes of arrangement approved
In the circumstances I was satisfied that I should approve the two proposed schemes of arrangement. I was satisfied that Doray had met the various statutory and procedural preconditions for approval. I was also satisfied that in the exercise of discretion I should grant approval under s 411(4)(b) of the Act.
Section 411(11) exemption
Doray sought an exemption from s 411(11) of the Act. No ongoing purpose will be served by requiring the orders approving the schemes to be annexed to Doray's constitution. The orders will be irrelevant once Doray becomes a wholly owned subsidiary of Silver Lake. Accordingly, I made an order under s 411(12) exempting Doray from this requirement.
Conclusion and orders
I was satisfied that I should approve the two proposed schemes of arrangement - both the share scheme and the option scheme - and made orders substantially in the terms as sought by Doray.
The orders made were as follows:
1.Pursuant to section 411(4)(b) of the Corporations Act 2001 (Cth) (the Act), the scheme of arrangement between the plaintiff, Doray Minerals Limited ACN 138 978 631 (Doray), and the holders of fully paid ordinary shares in the plaintiff, in the form contained in Annexure C to the Scheme Booklet (and which is contained in Annexure DJC-1 (pages 382 - 396) to the affidavit of Deanna Jayne Carpenter affirmed 26 March 2019), is approved (the Share Scheme).
2.Pursuant to section 411(4)(b) of the Act, the scheme of arrangement between the plaintiff, Doray, and the holders of options to subscribe for fully paid ordinary shares in the plaintiff (exercisable at $0.40 each on or before 30 January 2020), in the form contained in Annexure D to the Scheme Booklet (and which is contained in Annexure DJC-1 (pages 397- 408) to the affidavit of Deanna Jayne Carpenter affirmed 26 March 2019), is approved (the Option Scheme).
3.Pursuant to subsection 411(12) of the Act, the plaintiff is exempted from compliance with subsection 411(11) of the Act in relation to the Share Scheme and the Option Scheme.
4.The plaintiff lodge an office copy of these orders with the Australian Securities and Investments Commission on 29 March 2019.
5.These orders are to be entered forthwith.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EP
Research Associate to the Honourable Justice Vaughan28 MARCH 2019
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